Medicover AB

STO:MCOV B

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the second quarter 2020 results presentation. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, the 24th of July 2020. And I'll now like to turn the conference over to your speaker today, Fredrik Rågmark. Please go ahead, sir.

[Fredrik Rågmark, CEO & Director]

All right. Thank you, Janna. Good morning, everyone, and welcome to our second quarter earnings call here in Medicover. At this time around, I would like to commence this call with exceptional -- a strong dedication, expression of appreciation to all our staff, and of course, particularly to all our frontline staff, who throughout the crisis really worked relentlessly and professionally to meet all our customer demands and expectations despite these very most stressful times. So I would like to begin with expressing a thank you to you all. Then we go into the highlights of the quarter. Clearly, the second quarter for us, as the -- most of the rest of the business world, is a quarter that we like to be over. And despite this, I think, overall, it has come out significantly much better than we first envisaged when we went into the month of April and the crisis unfolded. So revenue came in just short of EUR 200 million or EUR 198.8 million, which was a 2% contraction versus prior year and organically just short of 8% contraction. EBITDA reached just north of EUR 25 million, a margin contraction of 80 basis points. Again, significantly ahead of what we would have seen in the early parts of the crisis. Fee-for-service revenue, which, of course, is the most exposed to the lockdowns and customers not being able to come to us, contracted 8% overall. And most of our service, of course, were quite significantly impacted by the COVID-19 crisis. And as you will see, as we go through the presentation, of course, one or perhaps the -- besides cost containment, the most important reason why we have come through this so far in good shape is really our diversification in terms of revenue and customer types as we talk about so many types. We estimate that the negative impact on revenue from the crisis for the quarter is some EUR 53 million. And you see that's pretty much an equivalent of some 26% year-on-year growth on the prior year quarter. So indeed, a very significant impact on the group. The really good news. You read about strong V-shaped recoveries. And if that will happen or not, I think we are a good illustration of a very V-shaped recovery, with a strong dip in April, more or less flat in May and a very strong pickup in June, as we write in the report, 19% up in June on the prior year month. Clearly, one should be clear on the fact that I'm sure within the June number, there's a certain element of deferred demand, but nevertheless it's very nice to see such a strong rebound. We completed the directed share issue during the quarter and raised just short of EUR 142 million net with 15 million new shares, creating a very strong balance sheet going forward. And as we previously have communicated, we maintain our 3-year financial targets until 2022. Important to point out on our 2 traditional pie charts to the right there, if we look at the pay or split, you note the left-hand side, the fee-for-service side, as mentioned, that's where you see the contraction. That's really the lockdown effect. You see our funded business, our prepaid insured business being up, not very much, but still a positive number. And the public side being up a bit more. Remember, that's quite a bit of an acquisition effect in there, both with the Neomedic and our Indian Hospital business to some extent in there. And likewise, on the right-hand side, you see the geographic split. We have commented before, Germany being a country that has been least affected in our business by the crisis, and that's quite visible as you see Germany as a geography is actually up 9%, whereas all the others are down. You see one of the positive number being India. But remember, that's all acquisition-related as the hospital group were not in the prior year number. So with the exclusion of India, obviously, everything is quite negative, but Germany being positive is a strong number. So we flip to the Healthcare Services side. Here, revenue is positive year-on-year, be it just a couple of percent, but still EUR 110.5 million, up, organic, obviously, contracting 8%. We had a very strong EBITDA progression in this division, growing 20%, up to just north of EUR 18 million. And that's really on the back to the point I made before with the diversified funding sources, particularly the strength and resilience of our prepaid corporate business and also the very swift actions to adjust our cost base and certainly also the ability to service in a very successful way, large groups of our customers on our digital health platforms that has really supported our customers in a very positive way and certainly helped us through the quarter. Fee-for-service contracted just short of 5% in the same way as across the businesses. Our member business was more or less flat. We contracted, in fact, 11,000 members. And those of you that have listened to our trading updates throughout the quarter, I have said that we may have a minor negative movement, or we will be flat. You see we came out 11,000 members down, which I think in the scheme of things is actually a very strong outcome. And we see that returning over the second half to positive movements. Clearly, one should be clear on that there still is a lot of uncertainty in terms of the outlook with the COVID and how much new outbreaks that will be coming back and how that will impact economies, et cetera. But we clearly don't expect to see another general knockdown of our societies. That we don't think will happen. We are virtually seeing new regional and local outbreaks. So clearly, we will live with this for quite some time. But I think the resilience of the business has been proven in this very general lockdown quarter, so to speak. In Healthcare Services, clearly, we've had the biggest impact on a number of our elective services that we've talked to you about before. IVF was, in fact, closed for a while. Our gyms business was also closed for a while. Certainly, big impacts on the dental business, et cetera, for a while. All of those are now more or less back to where they were or even above where they were when the crisis broke. We also have a new source of revenue in terms of the COVID-19 services in this division, really out of our Indian business. We'll come back to that in a little bit where we have significant demand for COVID-related services. You see on the pie charts here, where if we start with funding sources that are, a point I made before already, the funded, the prepaid business being basically flat, 2% positive. The fee-for-service business in Healthcare Services contracting 5%, and a 28% growth in our public business. Again, you know that is an acquisition-related growth as most -- we had quite a bit of that segment not being represented last year around. And in the geographic split, very much to saying, you see Poland, Romania more or less contracting the same amount. India not being represented last year. And the other smaller activities contracting a bit more. So flipping on to Diagnostic Services. Here, revenue-wise, more or less the same impact as on Healthcare Services, but significantly much more impacted on the profit level. Again, this is a reflection of the nature of the Diagnostic business, which is much more marginal in nature. We put on more revenue on top. Quite a bit of that is profit contribution. And the opposite is equally true. You take away quite a bit of revenue and then you also take away quite a bit of profit contribution, which is very visible from the EBITDA contraction and the loss of contribution. As you know, remember well, a much larger part of this business is elective fee-for-service or private pay fee-for-service. So that contract is some 11% for the quarter. Our lab tests decreased 21%, so obviously quite significantly as you can see. The COVID-related testing and immunology testing, in general, has been significantly scaled up and to some extent has insulated the contraction. And going forward, we're actually investing quite significantly now in scaling up our capacity in COVID-related testing, as we see demand for that significantly increasing through the rest of 2020 and also into 2021. We kept growing our BDP network, really on the backlog from project already initiated in prior quarters. And if you look on the pie charts here, at the bottom, again, quite visible, the private pay business contracting 11%. Our public business less impacted for obvious reasons, you see plus 1%. And the point I made before, on the geographies, you see a pretty much uniform pattern across the non-German countries contracting 18%, 22%, 23% year-on-year, whereas Germany, up 9%, again, illustrating the point that we have talked you throughout the crisis here in terms of the resilience of Germany. Then if we flip to a slide we put together on COVID-19, specifically, what has the impact been? So point already made. We estimate the EUR 53 million of revenue lost due to the lockdowns and COVID-related impacts. We have been very swift in terms of addressing our cost base in the quarter. I think we talked you through on prior calls that we have had voluntary compensation reductions, temporary unemployment, reduced working hours, et cetera, et cetera. Of course, we have worked with local governments where support packages have been available. We have worked with our landlords to have rent reductions, et cetera, et cetera. All of that, we sum up to approximately EUR 60 million of cost reductions during the quarter that clearly have very significantly helped us through. We're back now to normal compensation levels, et cetera. So going into the second half of the year, all of that is back. We've also had some tax deferrals clearly. So with the support of tax authorities, these will be paid now during the second half of the year and into 2021. So these are just tax -- cash flow effects on that. We have largely protected our employment throughout the group, thanks to -- and due to the dedication of all levels of staff across our geographies. So I have already expressed my gratitude to that -- for that, and I do that again. Activity levels are expected to normalize as we have previously communicated. Month of July has started well. So we expect a continued improvement from what we see through the second half of the year and returning to more or less normal trading condition in the fourth quarter. Again, I made the point many times that we bring this down to the essential nature of our services. Our services is really important in the societies where we operate. And I think that has been proving very well through this resumed demand. Obviously, we curtailed all our capital investments very strongly during the quarter, particularly, so the first half of the quarter, and we are now resuming our investment programs to start investing for growth again. I already made the point that I think everyone should be -- there's nothing certain in the world, but we are very clear on the fact that we expect new regional, local outbreaks of the virus, clearly. And in fact, in our geographies, you all read the newspaper, so in India, which is obviously a significant presence for us in. India is a country where the virus is still very, very, very significantly on the uptick. So the crisis is far from over, although with exception India in most of the geographies, where we operate, clearly it is very much more under control nowadays. I made the point that we are now investing significantly in new diagnostic capacity to be supported in what we expect to be an increased demand over the second half of the year for further COVID-related testing. Then if we flip to the next slide, we just tried to put some bullet points in terms of the 2 divisions and COVID. So starting with the DX side. It's about EUR 20 million revenue impact assumed here. I already made the point that we have quite a bit of mitigation of the revenue reduction here from increased COVID-related testing. Just to give you sort of a reference ballpark, about 3 -- a little bit more than 300,000 tests of COVID-related nature performed during the quarter, about 220 PCR tests to just to just give you a feel for the numbers involved here. We issued a press release, just to make you aware of that, on the 30th of July regarding a really interesting -- we ran a pilot project with Illumina and did quite a large-scale live pilot in the Munich area on just short of 2,000 live patients on running COVID testing on NGS technology, where you can have a dramatic and much larger capacity versus the traditional PCR technology. That tests, they came out, as described in our press release, really well. So this is not a commercial product yet. But I just draw your attention to that as a potential for the future to have a much larger capacity testing capability. And if we look at Healthcare Services. The revenue impact was larger here. So you see EUR 33 million. Again, that's the nature of the service business and many more customers being unable to come to our services throughout the quarter. Importantly, to say that, pretty much all of the services that were significantly impacted in the month of June are either back, just below or, in some instances, quite a bit above the prior year levels. So sort of illustrating that swing back in demand. I already made the point before that very swift actions to adjust the cost base here and also working with our commercial partners to manage the lower revenue. In India, we have our -- we have 3 of our main hospital units being adapted to enable the treatment of COVID-19 patients, clearly with strong isolation features. So currently, about 250 beds dedicated to that, and we are able to show the demand rise, which we expect it to be. Unfortunately, if you wish, during the second half of the year, so we can scale that further up. Currently, we run that at about 90% occupancy. And the vast majority of our patients are making full recovery. Approximately 2,000 patients we have so far -- 2,000 COVID-19 patients we have so far treated in our Indian hospitals, which obviously is a very important contribution to those local societies. So with that, I would like to hand over to Joe that will take you through the financial overview.

[Joe Ryan, Chief Financial Officer]

Thanks, Fredrik. So Janna, if you can slip to Slide 9. So I won't go through most of these numbers, because Fredrik has commented on them already, I think. But we were obviously impacted, even though the numbers have come out better than, I think, expectations were at the beginning of the quarter with the rebound that we've seen in terms of demand at the end of the quarter. Our net result is still impacted, though, so we came in with a loss of EUR 8.5 million on our net result. And that was also then impacted by the impairment charge which we put through, EUR 4.9 million net noncash charge. Janna, if you can move ahead? Slide 10. So our net proceeds from the directed share issue, which we did in June, is EUR 141.9 million. We issued 15 million new shares, just below 10% dilution impact in terms of the share base. It was very cost-effective in terms of the capital raise. We issued not far off the price of the share at that time. We had a strong investor base, and we had strong demand from that investor base, the existing one, and also some new shareholders that came in. So very effective ways for us to bring in additional capital to strengthen the balance sheet. And most importantly, it positions us very well for further organic and inorganic growth when and as those opportunities present themselves. So a really strong balance sheet.Our net interest cost, EUR 4.5 million, EUR 2.5 million of that was interest charges for leases. Despite having now quite significant cash on hand, we don't really see the non-lease part of that interest charge reducing so much because part of that is arrangement fees being amortized and then a large part is obviously commitment fees for our EUR 250 million revolving credit facility, which is now undrawn. So we have that fully available for us for expansion. Our foreign exchange was volatile. We had a profit this quarter. Q1, we had a loss, and this is the IFRS 16 impact, noncash movements where we have foreign currency leases in our operating countries, which is a very effective way for us to reduce the cost of our leases, but it does mean that we get volatility in this line. But overall, over time, this is a very cost-effective way. We don't go out and hedge those positions. That's just not going to really help us. So not particularly too worried about this line. And we've been through this foreign currency dive for evolving market, and we've gone through that fine. We've got plenty of balance sheet power, that's not an issue for us. Cash flow for operations before tax, very strong, just short of EUR 41 million. A very strong working capital inflows, both in Q1 and Q2, supported by high levels of receivables at the year-end and lower inventories. Underlying, if you strip out, the working capital adjustments and obviously adjust now for leases as well because that's an ongoing cash outflow, then our operating cash flow is actually impacted. You can see that, as you would expect, with the results been impacted due to COVID for the first half. But what is very encouraging is that we're getting paid, particularly by state statutory funders, which are always the ones which drag and are poor payers. And we see no real issues with funders, corporate. So our cash cycle is very supportive. And we've also been supportive for our suppliers as well in terms of making sure that they're being paid as well. Income tax. We have a charge now, reversing the credit we had in Q1. Basically, the recovery is much stronger than we expected in terms of demand. So the good news is most of our operating units are profitable at an income tax level. So we're going to be paying tax for the year. So that's -- in this today's environment, that's a good thing. Cash and cash equivalents up, a very strong EUR 124 million, as you would expect on the capital increase. And then we've paid down all of our short-term debt, except for a small amount, which we paid back in Q3. So our net cash net of debt is EUR 78 million versus EUR 240 million at the end of last year. So the remaining debt profile we have is the EUR 140 million Schuldschein, average maturity around about 7 years. So we have a very good debt profile, very good -- excellent liquidity position. Our lease liabilities, they've increased it in the first half, around about EUR 10 million. So this is on our gyms that we're expanding to support the employer pay gym benefit plans in Poland. India, 2 new locations, we've added on, which were in the pipeline before COVID, and we went ahead and finalized those, and some FX movements as well. So we're in the process now of continuing to expand. So we'll be adding more locations as we go through the second half of this year and into next year. So this balance sheet item will increase. Liquidity, we're up. If we look at cash and we look at credit lines available, we have over EUR 350 million of liquidity available. And this means we're in a fantastic position to be able to execute, not only our ongoing organic expansion, which we are putting back in process and pushing back on -- pushing ahead with again now, but also for inorganic opportunities as and when those present. As you know, we've done quite a bit of inorganic in the past, and we expect to do that and continue to do that in the future now with a strong balance sheet. Capital investments were lower. As we pulled back on that in the quarter, as you can expect, EUR 11.2 million And as I said, we will resume those growth patterns, and we maintain our guidance as well. And we will be investing to ensure we have that. We have funding, we have confidence in the business, in our business units. We're seeing the demand under there. So we're pushing ahead with our original investment plans. We -- as mentioned, we have this noncash charge impairment, EUR 4.9 million. This was pretty much individual sites, which were not performing. Well enough for us. So there's no business line or individual country. IFRS equity, just short of EUR 0.5 billion, EUR 473 million. So very strong equity and capitalization. We had some translation movements, as you'd expect, with the foreign currency movements on the back of the COVID-19 impact. And we certainly have enough equity and balance sheet power to be able to handle that. We look then at now on Slide 12, with our financial targets. Q2, as you can expect, with the COVID situation, growth is down. So on the 6 months prior year, we're -- on a 6 months organic, we were flat and for the Q2, we're down 7.7%. And then if you look at the profit, obviously, we've been impacted in terms of our margins. So haven't made the progress that we were originally expecting to do there. But we maintain our guidance for the organic growth at 9% to 12% over the 3-year period, looking at last year as the base. And we also maintained our EBITDA margin targets, 15.5% to 16.5% for 2022. Our capital structure, as you can expect on the capital increase, then our -- we have a plenty of headroom here in terms of our upper limits where we expect to work towards a 3.5x, we're at 1x. So I head back to you, Fredrik, for any closing remarks.

[Fredrik Rågmark, CEO & Director]

All right. Thank you, Joe. So that pretty much sums up our commentary of the quarter. So -- as I started out saying, certainly not a quarter that we would like to experience again. But given where we started out, I think we have come through this in a strong way and, again, on the back of fantastic staff support throughout our company. And I think we are now well positioned going into the second half of the year, where we expect demand to remain strong, and we remain vigilant and expect, as I said, new local and regional virus outbreaks, but nothing in terms of a complete general lockdown that we saw during the second quarter. So with those words, I hand over, and we're happy to take any questions that you may have.

[Operator]

[Operator Instructions] So our first question is from the line of Kristofer Liljeberg from Carnegie.

[Kristofer Liljeberg-Svensson]

Three questions. Hope that's okay. First of all, you mentioned that there were probably some pent-up demand in June. So I'm interested to hear if you could say anything about what July looked like so far. And then on India, you highlighted that some of the facilities or a quarter of facilities has been converted treating COVID-19 patients. So is that private pay? And also if you could comment how the rest of the business is doing in this environment? And then when it comes to the COVID testing that you're scaling up, what's the potential positive impact on sales? Could this be something really significant?

[Fredrik Rågmark, CEO & Director]

All right. Thank you, Kristofer. So I deal with those. So in terms of the pent-up demand, July has started off well. So we actually don't know exactly how much of the June impact is pent-up demand. It's actually impossible to know. I just made a point because there is some element of it. So I don't think that 19% in June should be interpreted that second half of the year necessarily will be up 19% year-on-year. So July is up, but not the full 19%. So it's a positive growth in July, but not fully at the June level. I think that's a way of answering that, Kristofer. In India, the COVID-19 patients that we treat are all private pay or private insurance. There is a government-related pricing cap, but you can charge for peripheral service around it, et cetera. So it is private pay and private insurance. Now the rest of the business in terms of Indian hospitals is impacted. So it's a little bit like with the Diagnostics business, and we say the COVID-related testing is sort of shielding some of the shortfalls in the rest. And it's sort of the same in India, but it's more pronounced because we -- the -- what do you say, unfortunately not. But we think, unfortunately, we will see much more COVID-related patients over the second half of the year. So we will see quite significant, I think, revenue impact from that in our Indian Hospital business, although other parts of the business obviously is not performing where they were before the crisis.

[Kristofer Liljeberg-Svensson]

Does this mean that there is -- I guess, the net effect is negative for India?

[Fredrik Rågmark, CEO & Director]

Yes, yes. Yes. India is -- Kristofer, the net effect versus where we would have been had there been no crisis is negative, yes, definitely. But it's significantly less negative than it would have been. And on the COVID testing side, we're scaling up demand -- sorry, we're scaling up supply, as I said. And I'm not going to put out a number, how much we expect it to be. But it will be visible. It's very meaningful volumes, put it that way. So if demand increases the way we expected, it will be visible in the diagnostic division revenue, certainly.

[Kristofer Liljeberg-Svensson]

And coming back to my first question about pent-up demand, July, et cetera, because your comments about the negative impact on sales in the quarter suggests you would have been growing 20%, including M&A without COVID-19. When do you think you could be back at that level? Do you see that happening towards the end of this year? Or is that out of question.

[Fredrik Rågmark, CEO & Director]

One -- we say normalized trading patterns in the fourth quarter. Now clearly, we still bring with us, for the year, the shortfalls that we have. So in terms of a rolling 12-month figure, it's going to take a while until we are back to our historic growth levels. If you take month-on-month, I think that's a different picture. Whether that will be towards the end of the year or whether it will be into 2021, I think it would be wrong to make a comment on that. And that's really because, Kristofer, not that we don't have a view, but it's such -- it really is a very large degree of uncertainty around additional COVID-related impacts. So -- versus any other situation we have been. Clearly, we have come through this quarter much stronger than we expected. But I think we have a great deal of respect still for the fact that it is an outlook which is unusually uncertain because of the -- what may or may not happen with additional outbreaks.

[Operator]

[Operator Instructions] Your next question comes from the line of Klas Pyk from Nordea.

[Klas Pyk, Research Analyst]

My first question relates to the revenue development. It might be an repetition of Kristofer's questions, but I didn't fully hear the answer, as I was interrupted by stating the name to the operator. Nevertheless, the 19% increase in June compared to prior year, could you please put that into perspective of pre-crisis levels, i.e., the level seen in January and February? Also, if you could put some color on the revenue development in Poland, which I believe was lagging the other regions a bit when you published your most recent trading update? That's my first question.

[Fredrik Rågmark, CEO & Director]

You want to comment on that, Joe, so we split a little bit?

[Joe Ryan, Chief Financial Officer]

Yes, yes, I can. Remember, we have some inorganic levels of -- in June as well. We had the acquisition, which we did for -- in south of Poland, the Maternity Hospital Group, Neomedic, back in May 2019. So June, that was in there on a like-for-like basis. But the Indian business was obviously additional in there as well. So that…

[Klas Pyk, Research Analyst]

But in terms of activity levels…

[Joe Ryan, Chief Financial Officer]

Pardon?

[Klas Pyk, Research Analyst]

Just in general activity -- just in terms of general activity levels, if you compare what the levels you see now compared to prior or pre-crisis levels.

[Joe Ryan, Chief Financial Officer]

Yes. I can give you a little bit more color on that. So you asked also about Poland. And we have this diversified business base. So our employer paid businesses has performed reasonably well given the protection of employment that you had across the countries. So that's performed very well in terms of the revenue holdup, and you see that in the member numbers. So there, we're above prior year numbers because we're above in terms of the member numbers on a prior year basis. Sequentially, we are flat. And if you look on the businesses which have been impacted by the lockdown, so particularly the diagnostics, IVF, dental things and stuff like that, then we're above levels that we were in -- on a prior year basis. It's a bit difficult to look back to January and February because we've got quite a bit of seasonality in the businesses as well. So we were first looking at our prior year levels because that's our sort of first target. But as now we've moved ahead of those prior year levels, then we're looking now at our original budget numbers in terms of tracking against those. So obviously, we still see an impact against those original budget levels. But it's -- we're very happy with the performance. When you asked about that we were seeing a lag in Poland, we were seeing a lag in Poland, particularly on the diagnostics side, and now we're above prior year levels back on the diagnostics side as well. So that's encouraging. Particularly, as you still have some lingering effects of the COVID-19 in terms of scheduling for hospital procedures, people coming to doctor's offices, you still see people reacting and behaving in a different way. So there still is a lingering impact in terms of the COVID-19 situation. But we're above prior year levels. So we're happy on that, and we'll look back in and tracking against our original budget figures as a target, but we -- I don't think we're going to get there, certainly, probably not before the year-end, but on an individual business unit. But we're looking forward to a normalization in Q4. I think that that will be supported by the ability for governments and health care infrastructures to be able to influence people's behaviors and also have large scale -- large volume testing and tracking and tracing and keep cap on the levels of COVID-19 running around in the general population. So that's our base case. That's our outlook.

[Klas Pyk, Research Analyst]

Okay. My second question related to costs. So you touched on it briefly, but just to clarify. So you say that you've returned to full compensation levels for your staff. As such, should we expect a normalized cost base going forward? Or is there still any cost reduction measures in place?

[Joe Ryan, Chief Financial Officer]

Obviously, we've been through the businesses, as you just can imagine, in all of our cost structures with a fine-tooth comb. So we will have some ongoing cost reductions that we put in place. And as you can see, in terms of the impairment charge, we have accelerated also, in a quite ruthless fashion in terms of any units, which are not performing at the levels or where our expectation is that it won't perform or the time line is too long. So that should have an impact in terms of being supportive in terms of the cost side. But what we see is -- you've got to remember, we're working in a particular sector. And we've got a lack of nurses. We've got a lack of doctors. We've got lack of health care professionals. Those people have helped us through enormously now in terms of dealing with this. And we want to make sure that those people stay with us and are happy with us. And so we want to make sure that the compensation comes back up to where it was. And also they're remunerated. It's reflected in there for the work that they've done. So we still see continuing inflation levels -- above general inflation levels in terms of our staffing costs. And that's cross whole society, so in Poland, Romania, Ukraine, so -- Germany. So we expect that we're going to need to continue to see an increase in there. And what this has demonstrated in terms of the crisis is the demand is there, and the demand is there and that people are willing to pay. So I think we can manage all of that. But yes, we have adjusted cost base. Yes, some of that will be ongoing. So -- but we would have done, I think, some of that anyway in terms of moving our margins up.

[Operator]

Your next question comes from the line of Carolina Elvind from Danske Bank.

[Carolina Elvind, Analyst]

So first, just a follow-up on the cost question here before. So if I understand it correctly, you have reduced your cost and including government support then by EUR 16 million in the quarter. Looking into Q3 and Q4, how much of that is temporary? And how much of those reductions would you have also going forward?

[Joe Ryan, Chief Financial Officer]

Shall I answer that, Fredrik, or you wish to?

[Fredrik Rågmark, CEO & Director]

No, go ahead, Joe.

[Joe Ryan, Chief Financial Officer]

Hello, Caroline. Yes, all of that is temporary. A large part of that is short working and temporary salary reductions. So Fredrik here, he's received no remuneration in Q2. All the other executives have taken significant salary cuts. And our frontline staff as well have been supportive in terms of making sure that we haven't had to lay any staff off. So it's been a fantastic solidarity from all of our staff in terms of making sure that we could go through this. And so all of that is temporary. If you look at in terms of the government support, it's not a significant number in that figure. The majority of it has been through -- and neither is landlord lease reductions. So the majority of it is staff costs, which is our biggest cost. So we just got a fantastic team, wonderful people in our business. And so we've been able to manage that and -- really proactively and really well.

[Carolina Elvind, Analyst]

Okay. And also on -- you talked a bit about investment plans, and you said you will resume them during the rest of 2020. But as of right now, are they still on hold? Or did you resume them already? And what lead times would you say there are for -- I mean, these investments that you will do to start contributing to growth?

[Fredrik Rågmark, CEO & Director]

Go ahead, Joe.

[Joe Ryan, Chief Financial Officer]

Yes, Caroline. So most of these projects are a long planning cycle projects. So we're investing now for projects for next year. So we're making commitments now for 12, 18 months in ahead. So quite a few of them were put on hold, and that they even had some direct cost impacts for us. But given the uncertainty at the beginning of the Q2, we felt that was the right thing to do. So some of them, very swiftly we put back on track. We talked about before, the 2 cancer centers that we had in India. So we're going ahead now in contracting to equip those, whereas we put that on hold initially at the beginning of the quarter when we were ready actually to sign contracts then, and so now we're reinvigorating those and getting those moving and signing contracts to equip those. We opened 2 new facilities in India already in the quarter, and we have a few others, which we’re now moving ahead with. So we have dental facilities in Poland, which we put on hold, and we had a pipeline of new gyms as well. So we invigorate pretty much all of those. A couple, we've put on hold, we assessed and probably won't go ahead with, but we want to go out there and push the button in terms of the opportunities we have. We're seeing the underlying demand. We're seeing that in terms of the numbers. And it sort of reinforces and reassures us in terms of -- with the COVID situation, and that demand is strong and is still there and the customers are still there. So that's why I think we're reasonably bullish in terms of our guidance for the 3 years that we will be able to achieve that.

[Operator]

Our next question comes from the line of Gergana Almquist from Redeye.

[Gergana Almquist, Equity Analyst]

My question is to Fredrik. I want to know more about the Ukrainian operation. It used to have a very strong growth, and now it's a very strong drop. Could you explain a little bit your views on this about the future?

[Fredrik Rågmark, CEO & Director]

Yes. We are very -- I am no less optimistic or impressed with our Ukrainian operation now than I have been before. Ukraine had pretty much the same profile of drop as our Romanian business, and that's really because the vast, vast, vast or all of our Ukrainian business is private pay out of pocket. And that more or less all -- I shouldn't say, all disappeared, but almost all disappeared in April and almost all reappeared in June. So I think of all our markets, Ukraine is probably the one where you have the most pronounced V-shape recovery. And now you know if you follow it, that Ukraine has quite a significant virus spread as well nowadays. And I'm sure there's a very large amount of -- I'm testing in Ukraine. So it's -- I'm sure it's a much wider issue than what is reported as well. So -- but on an ongoing basis, we have -- we're back to normal in terms of our customer flows. And so if anything, Ukraine is a place where I made, I think, twice in this call the comment that we expect actually a second half positive impact from COVID-related testing, and Ukraine is certainly a geography where that will be visible because I think everything else equal on the back of a very weak and sometimes nonexistent public system, of course, anyone that is worried about the virus, they will turn to the private sector for testing and then that's pretty much us in Ukraine. So we're very optimistic, Gergana, on the Ukrainian outlook.

[Gergana Almquist, Equity Analyst]

And I want to ask also about the Romanian operation and specifically the Pelican Hospital. You had some building works there. How is that going?

[Fredrik Rågmark, CEO & Director]

Yes, yes, yes, absolutely. And that's a pertinent question. That is ready. We've opened that now. The extension is open, and we're growing. So in fact, from a revenue point of view, Pelican did really well. They had actually significant growth year-on-year in the second quarter. So -- despite obviously being largely private pay, so that's good. It's open. It's growing. It's doing well.

[Gergana Almquist, Equity Analyst]

Okay. And the sale of the Polish hospitals, how is the occupancy rate? And how are the operations doing?

[Fredrik Rågmark, CEO & Director]

Say that again? I didn't hear your question.

[Gergana Almquist, Equity Analyst]

The hospitals in Poland, have you seen any impact on the occupancy rates? And has operations resumed? How is the activity in…

[Fredrik Rågmark, CEO & Director]

Yes. I mean if you take the Neomedic group down in Kraków, as you know, that's mother and child. So that really -- a little bit of impact on elective, but I think we had a record number of births and deliveries down there, several months. So people are pregnant and delivering babies despite the crisis. So in terms of Neomedic, relatively little impact. Wilanów in Warsaw saw quite a bit of impact in April, of course, from elective surgeries. That has come back quite significantly, so sort of second half of May, June. The Wilanów Hospital would be reflective of the overall picture that we communicated. So quite significant drop early on and significant coming back really in terms of elective surgeries not happening and then some of that resurgence coming back being a pent-up demand that we talked about before.

[Gergana Almquist, Equity Analyst]

Yes. So would you say that the demand that was lost during the crisis will be recuperated in the second half or…

[Fredrik Rågmark, CEO & Director]

Yes. I mean, as we said in a couple of the trading updates, our view is because of the essential nature of the service, most of it will not be lost business. Most of it are deferred business, and I maintain that view. Then it's impossible to be able to quantify if it's x or y percent. But the vast majority, I think, of business that we could not service during the depth of the crisis, it will come back to us and we already see that. And I'm sure that's how it is.

[Gergana Almquist, Equity Analyst]

Okay. And my last question is about potential acquisitions. Have you identified any targets or not? Or you don't have any?

[Fredrik Rågmark, CEO & Director]

Yes. I mean -- yes. So I think the way to answer that, Gergana, is that we have a -- as you know, we have a team in both of our divisions working on active deal sourcing and M&A activities. Now what happened, when the crisis broke, was, we just said, well, for now, we do nothing. Yes. It didn't mean that we said, well, we're just going to stop this forever. So we basically just put a temporarily halt on anything to preserve cash in the company. So now Joe talked about resuming investment activities, that's both organic and inorganic. So now when we're resuming this, we just start from where we left it in sort of second half of March. And pretty much the landscape now looks -- yes I mean, you can't say it's identical, but it's pretty much the same as it was when we left it in March. So we go back and we resume the same discussions and the same processes as was running back then, and restart the engine again, if you wish. And of course, I'm not saying that you restarted from 1 day to another, but you probably restarted certainly from a 2, 3-week period to the next month. So give it a month or so, and then I'm sure we'll be back with the regular pace that we had before.

[Operator]

Your next question comes from the line of James Vane-Tempest from Jefferies.

[James Alexander Stewart Vane-Tempest]

You mentioned some reimbursement of some costs in the quarter around EUR 16 million. I'm just wondering which line items did you see these to help us think about the second half of the business. And then secondly, in India, how should we think about the contribution this year in performance given the COVID curve seems to be behind Europe?

[Fredrik Rågmark, CEO & Director]

Do you want to take that, Joe?

[Joe Ryan, Chief Financial Officer]

Sure, Fredrik. James, it wasn't reimbursement of EUR 16 million cost. That was the cost reduction. As I said, most of it was through salary reductions, short working time and voluntarily or across the board for some businesses. We had some businesses pretty much closed. So we had all people being on short-term working. We had government grants in there, but they're not significant. I think the amount of money with the order of -- a little bit over EUR 1 million. So not a significant component of that, James. The India in terms of where they are in terms of the COVID curve, they have lower per capita rates they're reporting than Sweden. So it's a big country. Now the infections are concentrated in more areas, as is Delhi, Mumbai and a few other cities. Hyderabad being one of them where you have active infections going on. So I think you're going to see a spread where it's going to go out through other cities across India as well. When you get a case, they are very, very strict in terms of their lockdown procedures. So I think that they will be able to manage it to a certain degree. But given the size of the country, population, the health care infrastructure, for sure, it's going to be an ongoing issue. So that affects us in terms of elective procedures. Our emergency procedures continue as we did before. We're doing quite a bit of that. And actually, in some places, we've got a bit of business coming to us that we didn't have before because certain hospitals have been designated as COVID hospitals and people don't go to them, whereas we have no specifically designated hospitals. Just to make the position, about the 250 beds, it's in 3 locations where we have specifically set up wards, but the hospitals continue to do other activities as well, separate flows, almost separate physical part of the hospital. So -- and we're seeing that, that business line, I think, in terms of treating COVID patients, which are all private pay or private insurance, I think that's going to continue for -- through into next year. So I don't think there's going to be a situation where you're going to see those sort of levels reducing. And that is on a net basis impacting in terms of helping us to diminish the loss that we're having in terms of other elective procedures. So I think we'll be okay in India given the situation.

[Operator]

And your final question is another question from Kristofer Liljeberg from Carnegie.

[Kristofer Liljeberg-Svensson]

Coming back to this -- the previous question about the temporary cost. I think you just talked around it a little bit. But I guess considering that the second quarter turned out better than expected, isn't it difficult for you to continue ask employees for salary cuts now in the third quarter. And let's assume you could grow top line 10% in the third quarter, how much of the EUR 16 million would you still have in place in that case?

[Joe Ryan, Chief Financial Officer]

I would expect in terms of the EUR 16 million, almost all of the EUR 16 million has come from salary actions. But we -- as Fredrik mentioned, we have -- all of those are finished. So we're paying all of our staff as we were before the crisis. So we won't see any of that coming through. But we need our staff to work. We've got the demand there. We've got the patients to treat. So it's just correct that we pay them. So we're not going to see any of that coming through. So we're going to be, in terms of our cost structure, back to what we were in terms of a pre-COVID situation. And in some cases…

[Kristofer Liljeberg-Svensson]

Okay. Sorry, sorry, so based on that, because you indicate sales won't be back at pre-COVID levels, while cost is, so it's a risk that margins will actually be weaker in the second half than what we saw in the second quarter then.

[Joe Ryan, Chief Financial Officer]

Yes, I think we gave some flavor in terms of where we're seeing in terms of the sales levels. And as you can see, we mentioned there that we're up 19% in terms of June. We're seeing continuation of decent demand into July. So part of that is inorganic, but still we're -- in terms of our revenue side, I think we're going to be okay. And I think if you look at your projections from the analysts, you're projecting that our revenue is pretty okay in the second half of the year. So I think in -- with the actions we've taken in terms of our cost base in terms of things which weren't really performing, with the other actions we've taken, with the demand levels we've seen, I don't think we're going to be too pressured when we get back to normalization in terms of the margins. I think as I mentioned…

[Kristofer Liljeberg-Svensson]

It sounds that the July sales increase is not far off from the 19% then, so in June?

[Joe Ryan, Chief Financial Officer]

Yes. I think, we've got 2 aspects going on. One, which is where people haven't had services and they're coming back. So we've got a certain amount of pent-up demand. We can't really quantify that for you. So there's definitely a part of that. Part of that is continuing into July. So does it come down then to a level, which is more commensurate with a longer-term trend? That's where we haven't got the real outlook. We've got autumn coming. So I'm sure there's going to be an uptick in terms of the COVID situation, also confused with the normal regular flu. So that's going to make it more difficult for management by public health authorities. So we've got a fair degree of uncertainty in terms of the outlook. We're okay now. It's in the summer. People are not going on vacation, so they're at home or locally. So they're using more health care services. So to be able to look at those numbers and then project that forward is quite a bit of a leap of faith, I think. And I think, as I mentioned, in terms of when we gave the updates earlier on, during the outset of the crisis, I think longer term this situation will probably help us in terms of meeting our margin target. And as you can imagine, we have not been sitting on our hands, we've been pretty busy in terms of going through everything, looking at everything, justifying everything. So I think we'll be okay in terms of the margin outlook.

[Fredrik Rågmark, CEO & Director]

Just to clarify that, Kristofer. Joe sort of said it, but I say it in a more straight way, and that is that the EUR 16 million is all one-off because we dealt with that in the quarter to manage the crisis. Now what we have done in addition to that, now we have brought back people to normal compensation, et cetera, et cetera. So all of these one-offs are back to normal. However, we have also, of course, gone through -- Joe made that comment, gone through our -- everything we do and with a conservative, cautious outlook and ensure that we have adjusted costs going forward to reflect slightly more uncertain revenue outlook because I made the point before, I think, we got to respect the fact that we've never had such an uncertainty in general in terms of will this come back and how will it impact us, et cetera, et cetera. I think we're in a position where quite a bit of a potential impact coming back will be revenue generation. But nevertheless, we have been conservative to adjust some of our costs going forward on a permanent basis. We have not quantified that in here for obvious reasons. But we're confident that we will meet our margin expectations despite a bit of uncertainty on the revenue growth, and that's really on the back of these cost adjustments.

[Operator]

There are no further questions. Please continue.

[Joe Ryan, Chief Financial Officer]

So I think that's it for questions.

[Operator]

There are no further questions.

[Fredrik Rågmark, CEO & Director]

All right. So thank you all for attending the call today, and thank you for your questions, and looking forward to speaking to you next time around. Thank you. Bye.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all now disconnect.